November 22, 2018 by David Gambrill
A trial to determine whether The Co-operators was negligent in distributing insurance funds contrary to the instructions of a mortgagee will be allowed to continue, the Ontario Superior Court of Justice has ruled.
The court denied a motion for summary judgment by The Co-operators to quash the civil suit, with the insurer arguing that the action was not brought within the insurance policy’s one-year limitation period.
In ruling against the Co-operators, the judge found in part that a trial was required to explore whether the mortgagee’s distinct cause of action in negligence was restricted by the limitation period.
“The undisputed facts in this motion reveal that on Dec. 5, 2016, Westboro [the mortgagee] directed [insurance] payments to be made solely to the contractor Paul Davis for repairs to the building,” Ontario Superior Court Justice Ronald Laliberte wrote in a decision released Nov. 16. “It was also agreed that Co-operators would send copy of the work performed to Westboro. Again, the undisputed evidence is that payments were made to individuals other than the contractor Paul Davis as agreed upon without Westboro’s consent and knowledge.
“The court’s view is that, at a minimum, these dealings and actions raise genuine issues requiring a trial on how Co-operators dealt with Westboro in the adjudication of the claim under the policy. This conduct certainly raises the probability of a distinct cause of action which is not restricted by the limits in the policy, including the one (1) year limitation period.”
Westboro Management Ltd. commenced an action against The Co-operators on Mar. 21, 2018, claiming damages in the amount of $288,388.24. “The claim is based on alleged negligent distribution of insurance money which is said to have detrimentally affected [Westboro’s] secured interest in property destroyed by fire on November 29th, 2016,” Laliberte points out in his ruling.
The merits of the claim have not been decided. The Co-operators disputes the claim, arguing not only that it was initiated after the policy’s one-year limitation, but also that Westboro did not actually suffer damage as a result of the way the insurance funds were distributed.
As stated in Laliberte’s ruling, the undisputed facts are that 2138658 Ontario Ltd. operated a residential seniors’ care centre located in Seeley’s Bay, Ont. Its president was Ronald Rudd. The property was insured with Co-operators and the policy included a Standard Mortgage Clause. Westboro was the first mortgagee on the property for an amount of $650,000.
2138658 Ontario Ltd. was struggling financially and stopped making mortgage payments to Westboro in April 2016. This resulted in the issuance of notices of sale under the Mortgages Act by Westboro on June 8, 2016 and on Dec. 7, 2016.
On Nov. 29, a fire in the building on the property resulted in residents being removed from the home; they stayed in a hotel and another seniors’ residence. Two days later, Westboro contacted Co-operators to confirm that it was listed as a loss payee.
The Co-operators contacted Westboro on Dec. 5 to get direction on whether insurance proceed monies could be paid directly to the contractor Paul Davis, who was concerned that he would not be paid because of the mortgages on the property. The notes of the claims representative on Dec. 5, 2016 state: “…Westboro Mortgage Investment Corp. has directed payments to be made solely to PDS [Paul Davis Systems] but wants copy of work performed sent to them…”
On Mar. 22, 2017, Westboro requested and obtained from Co-operators a spreadsheet listing the insurance monies it had paid. On this date, Westboro first discovered that payments of at least $288,388 were made to persons other than the contractor Paul Davis.
One person receiving an undisclosed amount was Rudd, who later lost his license to operate a seniors’ residence after an investigation into financial improprieties.
The Co-operators further noted two payments to 2138658 Ontario Ltd. were made for items related to the building:
Also, $135,127.45 was paid out to hotels and another seniors’ residence to where the seniors were relocated.
The Co-operators contends that the statute of limitations started running on the date of the loss, which was the fire (Nov. 29, 2016). If this is the case, the one-year policy limit would apply to Westboro’s claim (initiated Mar. 21, 2018).
Westboro argues that the date of the loss was actually on the day that they first found out that someone other than Paul Davis received insurance money, contrary to their instructions to the insurer (Mar. 22, 2017). If this is the case, then the policy’s statute of limitations would not apply.
This should be the result of a summary judgement, as the cause of action for Limitation must always be re-examined.
I believe Westboro has a case here.
#1-This is a negligence claim, not property damage. It is totally
different from filing a claim on property, which was done. The
limitation is 2 years on the Liability (negligence) of the Co-operators
#2-If, the 1 year limitation period sticks (which it should not), the
limitation period starts from when it was first disclosed to Westboro
the funds were distributed to someone other than the party they